HR predictions for 2018: what they mean for you

The CIPD, the professional body for HR and people development, explains why 2018 is likely to be a year dominated by pay, productivity and migration in preparation for the UK’s exit from the EU.

Ruth Holmes

19 December 2017

In its annual assessment of the future labour market, the CIPD believes the squeeze on living standards and productivity will last well into 2018, despite a tightening of the labour market. It is also warning the next 12 months could be the moment the UK runs out of people to fill its jobs.Following a year of increasing pressure on the cost of living, the CIPD predicts:

The UK workforce could tighten: unemployment levels are unlikely to change significantly and ONS data points to constraints on labour supply

Pockets will continue to be squeezed: only falling inflation is likely to lead to meaningful wage increases in 2018

There will be no improvement in productivity: productivity will continue to stagnate and remain well below pre-crash levels.

Ian Brinkley, the CIPD’s acting chief economist, anticipates employment growth will level off and weak pay growth as the UK fails to boost its productivity.“In 2017, we saw record-high employment but a big squeeze on household budgets; the next 12 months looks to be a case of more of the same,” he said. “With Brexit negotiations entering their next crucial phase, all eyes will be on the ability of the government to ensure employers can access the skills and workers the economy needs.“Workers will also be hoping that pay rises faster than inflation, but that may not happen until much later in the year.”

What does 2018 hold for the UK labour market?

“The year will end with more people in work than ever before, but there are signs that we may have hit peak employment,” continues Mr Brinkley.“The latest ONS figures point towards constraints in the overall supply of labour, so 2018 could be the year when the UK finally runs out of people to fill the jobs in the economy.“However, there is little sign of excess demand for jobs, so it is possible that unemployment levels will remain broadly the same over the next 12 months.”Related stories:

Pay outlook for 2018

Mr Brinkley also sees “little evidence” wages will rise anytime soon, although the national minimum wage will see some workers get an uplift.“Most employers can’t afford to or don’t feel the need to make an above-inflation pay rise,” explains Mr Brinkley. “People hoping to see more money in their pocket in 2018 should hope inflation returns to nearer its 2% target, a level it is predicted to be approaching at the end of 2018.“Even if we do see any growth in real earnings, this will be nowhere near enough to make up for the consistent falls in real earnings we have seen for most of the last decade.”

Where will the UK stand in 2018 on migration?

The CIPD is predicting 2018 will be a defining year for migration. However, he believes the changes for migration in the run-up to Brexit will be gradual.“Until now, we have been able to supplement labour supply through net migration, which is why the UK workforce has kept growing,’ says Mr Brinkley. “However, recent falls in net migration post-referendum suggest that this may not be a long-term solution. Any adjustment is likely to be slow and steady, rather than a cliff-edge scenario where supply disappears overnight. “It is worth noting that the number of EU migrants coming to the UK for work purposes has remained broadly consistent with the pre-Brexit average, so there is evidence that the effect of Brexit on migration may not be as significant as predicted.“Sectors that are highly reliant on migrant labour, such as hospitality and agriculture, will be nervously watching the Brexit negotiations to see whether they are likely to get the favourable migration deals they want in order to meet their labour supply.”

How can UK companies boost their productivity?

Commenting on the third major trend the CIPD sees for 2018, productivity, Mr Brinkley believes that with focus on training and improved people management practices, there is scope for some improvement in how the UK produces its goods and services.“There is nothing to suggest that there is a long-term productivity recovery underway, despite the figures in the last quarter being better than expected,” he says. “While productivity may pick up a little over the next 12 months, we will still face productivity outcomes well below pre-crash levels this time next year.“To avoid low productivity becoming an entrenched, long-term problem, the government needs to look at its underlying causes. This includes what is preventing many UK organisations from investing as much as their international counterparts on training and ways to improve people management, especially in SMEs.”For related news and features, visit our HR section. Look out for the launch of 2018's Relocate Awards, entries open in January. Relocate’s new Global Mobility Toolkit provides free information, practical advice and support for HR, global mobility managers and global teams operating overseas.Access hundreds of global services and suppliers in our Online Directory